South Korea’s government has unveiled a blueprint to transform the won from a “regulated currency” into a “freely convertible currency.” The Ministry of Economy and Finance announced the “Won Internationalization Roadmap” on the 19th, stating it would significantly improve foreign access to the won to attract investment in won-denominated assets.
Lee Hyung-ryul, Director General of the International Finance Bureau at the Ministry of Economy and Finance, explained, “Since the Asian financial crisis, crisis prevention has underpinned all foreign exchange policies. Now, we are shifting policy direction toward reaping economic benefits through won internationalization.” He added, “South Korea remained trapped in the regulated currency framework even after becoming a net creditor nation through prolonged current account surpluses. This roadmap contains directions to build infrastructure and redesign institutions befitting our status as an economic powerhouse — the world’s 5th largest trading nation and 13th largest by GDP.”
According to the Bank for International Settlements (BIS), the won accounted for just 1.8% of global foreign exchange trading as of December last year, ranking 12th worldwide. Compared to major currencies like the dollar (89.1%), euro (28.5%), yen (16.9%), pound (10.2%), and yuan (8.6%), the won’s international usability is considered lacking relative to South Korea’s economic size.
The core of this roadmap is laying a “dedicated expressway” for won transactions between foreigners. As early as January next year, the government will allow foreigners to freely transact using won accounts opened at overseas financial institutions without needing to separately open domestic accounts in South Korea.
To achieve this, the government will utilize the Registered Foreign Institution (RFI) system, under which overseas financial institutions meeting certain requirements register with the Ministry of Economy and Finance. To date, 83 overseas financial institutions have registered as RFIs. For example, a U.S. asset manager could open a won account at JPMorgan Chase Bank in New York and deposit or hold South Korean bond investment proceeds in won. A German auto parts company purchasing components from a South Korean partner could pay and settle in won held at a bank in its home country.
Foreigners using RFIs will be exempt from capital transaction pre-reporting under foreign exchange laws, and banks’ obligations to verify import/export facts will also be eased. Director General Lee emphasized, “Currently, when foreigners invest in won-denominated stocks or government bonds, they cannot exchange currency during their daytime hours, which is nighttime in South Korea. Removing such restrictions is the core of won internationalization.”
The Bank of Korea will newly establish an “offshore won settlement network” to support final settlement of won transactions between foreigners. A pilot operation begins in September, with full 24-hour operation planned from January next year. Following the transition to 24-hour uninterrupted won-dollar FX trading on the 6th, the government will also change the benchmark rate calculation method to the global standard (TWAP) starting January next year.
Regulations on onshore won transactions will also be significantly eased. The pre-reporting threshold for won capital transactions between foreigners and foreign exchange banks, residents, and domestic companies in South Korea will be raised by more than double. The Ministry of Economy and Finance plans to prepare specific measures by September, balancing industry demand with deregulation needs, and pursue related regulatory revisions within the year. A ministry official stated, “We will comprehensively review current capital transaction pre-reporting types and may significantly raise thresholds beyond doubling where necessary. We will proactively ease pre-reporting standards and gradually transition to a post-reporting-centered system.”
Issuance of won-linked foreign currency securities by foreigners will also become easier. Issuance of won-linked foreign currency securities under $50 million (~74 billion won) will require only post-reporting within three months of the issuance date. This measure aims to enhance foreign investors’ access to won-denominated securities investments. Through this, the government aims to create an environment where domestic companies like Samsung Electronics (005930.KS) and SK Hynix (000660.KS) can raise funds by issuing won-denominated bonds overseas.
Currently, won trading in offshore markets is predominantly conducted through non-deliverable forwards (NDFs), where only the difference is settled in dollars without physical delivery. The government plans to separately announce incentive measures for foreign exchange banks in September to facilitate conversion to deliverable (DN) transactions.
Measures to expand won supply and demand are also being pursued. The government plans to establish local currency direct trading (LCT) systems with major trading partners for settling import/export payments in local currencies, and expand trade finance utilizing currency swap funds. It is also reviewing plans to provide export finance incentives when using won in purchase contracts with foreign governments for defense, nuclear power, and other sectors.
The government is also responding to digital finance innovation. It will establish grounds for issuing, distributing, and trading won-denominated stablecoins, and pursue a government bond tokenization proof-of-concept pilot linked to the Bank of Korea’s wholesale CBDC (Central Bank Digital Currency) next year. South Korea will also join as a formal member of “Project Agora,” the BIS-led digital currency project connecting central and commercial banks.
Won internationalization is also closely linked to inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets Index. However, achieving this in the short term will be difficult. China, which ranks second globally in trade finance settlement market share, has been pursuing yuan internationalization for over a decade since concretizing its plans in 2013. A government official stated, “Conditions for won internationalization have matured alongside the advancement of FX and capital markets, including FX market structural improvements, WGBI inclusion, and the MSCI roadmap. We will pursue won internationalization commensurate with our economy’s level of sophistication while maintaining balanced consideration of risk management.”
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